Equities Weekly: Oil prices rebounded slightly

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Equity markets worldwide rebounded over the week ended February 6, 2015 (in local currency terms). However, for Malaysian investors, most of the gains were pared by the rebound of the ringgit against most currencies over the week as the ringgit rebounded 2.68 per cent against the US dollar.

The MSCI AC World index increased 1.8 per cent while the US (as represented by the S&P 500 index) posted a 0.53 per cent gain over the week. However, Europe (as represented by the Stoxx 600 index) recorded a 0.53 per cent loss and the Japanese equity market (as represented by the Nikkei 225 index declined 4.1 per cent over the week.

Emerging and Asian markets as a whole also rebounded over the week in US dollar terms but the gains were pared down by the strengthening ringgit, with the MSCI Emerging Markets index and the MSCI Asia ex Japan index decreasing by 0.78 and 1.7 per cent respectively. Countries like Taiwan, South Korea and Hong Kong saw their respective equity markets post losses of 1.19, 1.61 and 1.81 per cent respectively over the week. China’s HSML 100 index fell 1.86 per cent lower the week while the Shanghai Composite index dropped 6.46 per cent over the week. Over in Southeast Asia, the Thai equity market ended lower by 0.27 per cent over the week, while Indonesian equities (represented by the JCI index) decreased by 0.98 per cent. Singapore’s STI index also posted losses, decreasing by 1.25 per cent over the week.

Meanwhile, energy prices rebounded slightly over the week, with the WTI crude oil price increasing to US$51.69 per barrel. The slight rebound has helped boost performance of the equity markets of energy exporting countries like Russia and Malaysia, which have seen their respective markets rebound by 9.26 and 1.8 per cent over the week.

 

East Asia: China’s manufacturing PMI in contraction territory, PBOC lowers RRR, South Korea’s exports fell more than expected

China’s manufacturing PMI reading fell to 49.8 in January, lower than the consensus estimates of a 50.2 reading and descending into contraction territory for the first time since September 2012. Various output indices indicate signs of contraction as well, including major sub-indices such as the production index and new orders index. The PMI reading of larger-capitalised companies declined from 51.4 to 50.3 in January, while the PMI readings for middle-capitalised and smaller-capitalised companies rose to 49.9 and 46.4 respectively – with both still remaining in contraction territory.

The People’s Bank of China (PBOC) lowered the country’s reserve requirement ratio (RRR) by 50 basis points, bringing the ratio down from 20 to 19.5 per cent. The latest move by the central bank is the first cut in the RRR since 2012. The RRR for smaller Chinese banks was lowered from 18 to 17.5 per cent. The cut in the RRR should have the impact of boosting liquidity – with yuan deposits at approximately 114 trillion renminbi (as of end-December 14), a 0.5 per cent cut in the RRR may be expected to boost liquidity in the banking system by approximately 500 billion to 600 billion renminbi. Following the boost in liquidity, there was a marginal decline in yields for shorter maturity onshore CNY sovereign bonds, although there has not been much of a positive impact on the SHIBOR – possibly due to the impending Lunar New Year holiday season.

Over in South Korea, exports fell by 0.4 per cent y-o-y to US$4.37 billion in January, better than a 2.8 per cent y-o-y decline expected by market consensus. Exports to the European Union (EU) fell 23 per cent y-o-y, offsetting the 5.3 per cent y-o-y rise in exports to China. Though higher than expected, the exports data was skewed due to a higher number of work days in January this year as compared to last year. On a daily average basis, exports value fell 6.7 per cent y-o-y, and markets remain concerned over how weakening global demand may impact the outlook for South Korea’s exports.

 

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